June 18, 2011

In a previous column, I was giving real estate site Movoto a little bit of friendly ribbing over how they “helpfully” provided high schools that were far from a featured home, while ignoring much closer (but lower-scoring) schools. I suggested that they deliberately “lost” their distance data so they could upsell site visitors, who would see the high test scores and decide to buy a more expensive house.

Seems I’m not the only one wondering what’s up with Movoto and their data. Here’s an observation from Burbed reader Robert:

You guys have a link to Motovo.com on your website. When I looked at San Jose, CA market stats on Motovo.com I get some strange data out… http://www.movoto.com/statistics/ca/san-jose.htm Over 5,000 new listings, but only 11 sales, in the last five months. How can that be?

Just in case Movoto actually reads the other column and fixes whatever was munging their data, here’s some screenshots to show what Robert is talking about. This is the first part of Movoto’s San Jose statistics page.

Since that’s not the easiest thing to read, here’s a close-up of the monthly listing and sales numbers:

Notice the number of price reductions and listings sold or expired. Robert is right. What the heck happened here? First, let’s see if the problem is everywhere or just this one site. What does Redfin have to say about sales in San Jose?

According to Redfin, sales dropped but not by several orders of magnitude. Is Movoto showing weird numbers for all cities? Here’s Santa Clara:

Interesting: sales plummeted, but in March rather than January. Let’s check a few more cities. Everybody’s favorite: Sunnyvale!

I just popped over to Altos Research to see how Movoto’s screwy numbers compared, and what did I see? Palo Alto has moved from a buyers’ to a sellers’ market, crossing the magical 30 threshhold in mid-April. Take a look at the chart, it’s a sudden rise after literally years of crawling around in the low 20s. Today the Market Action Index is 38.61.

Yes, the rise coincides with the usual spring buying season, but a spot check of a few other cities doesn’t show the same behavior. Sunnyvale cratered from 23 last July down to 18 and has returned to 23, still a BUY signal. Menlo Park looks like a heart attack, returning to a local high of 21. Atherton was higher the beginning of the year and has dropped from 23 to 17.5. Los Altos showed similar but less clear behavior, today index is at 22.5. Mountain View is also climbing, to a high of almost 26, which is still a buyers’ market. It was as low as 18 last October.

Santa Clara is in the 19 doldrums, and San Jose is slowly climbing out of a trough, to 19.66. Still pretty buyers market.

Feel free to noodle around, but my spot check only found a good market action index for Palo Alto and none other. And they didn’t even have data on how many houses sold, only on how many new listings there are.

If it weren’t for the constant prattle from our troll, the phenomena in PA would be quite interesting to discuss. Why are housing prices doing so well in such a tiny area? There has to be more than public schools preventing spillover into the wider market.

Remember the rich are getting richer and the poor are getting poorer. This means the rich are getting richer. And, so you see stuff like Mercedes-Benz having a really good year, tip-top high end stuff in general doing well. Remember I mentioned a friend selling his house in Irvine for cash to a Chinese buyer who’s getting it as a graduation present for his daughter? Deal done. Up at the top end there’s still a lot of money floating around, gobs of it in fact. So they’re buying in their little elite areas like PA before the financial alligator that’s eating the middle class come for THEM, of course.

Sure, there is a ton of money floating around, but isn’t there enough diversity of opinion on what constitutes a good place to live among the wealthy to see higher prices in places like Los Altos or Saratoga, for example? Not to mention that some of them might want a bit more value for their money.

What you’re implying is that there’s “old money” at play. That is simply not the case in Silicon Valley. A lot of these people are newly minted millionaires. Many are quite young. A few years ago they are just your average guy or gal, but they have the smarts to grab a share of the big money that’s floating around.

If you are looking for value for money, go to Walmart. That’s not what it’s about. Having said that, a lot of them do go for Los Altos or Saratoga. The $100M dollar house is actually in Los Altos Hills, for example. For the younger crowd, Palo Alto is in my opinion the more happening place to be.

When considering the average selling price, which is what has been concentrated on, we also need to consider the mix of the properties. When Vegas started going down in terms of per square foot, the average selling price was actually going up. And of course those valuations came back, since a larger home was selling for slightly more than yesterday’s smaller home.

If the value of all homes suddenly goes down by 10%, but the actual amount spent by buyers goes up 10%, then the average selling price goes up 10%, since the buyers are buying higher priced homes, yet these are the same homes that have gone down in value.

For example, if someone was considering spending $1.0M, but now that prices have gone down, they could buy what was formerly considered a $1.1M home. But the buyer really wants a former $1.25M home, so instead of spending $1M, the buyer spends $1.1M on the $1.25M home. This pushes the selling price up from $1.0M to $1.1M, even though the seller recorded a loss on sale.

Another problem with PA analysis is the total wealth in the area. When buyers are spending less than 1% of their net worth on homes, it’s very difficult to know how much these buyers might spend, if necessary. In other words, so what if the cost is $7M or $14M when these amounts are essentially equal to the buyer. It’s like walking into the candy store with a small child–does it matter if the child wants 7 cent candy or 14 cent candy? Sure 7 cents might be a lot of money to the child, but it’s essentially nothing to the parent.

I’m never really sure what was going on in the heads of small children, but I once had a small child ask for candy in the store. I replied, “Pick out whatever you want and put it on the counter.” The child was asking me if a given choice was too expensive. I replied, again, “Pick out whatever you want and put it on the counter.” Again, I never really understand what the small child is thinking–it’s like they don’t believe that they are actually allowed to choose, and I could care less about the cost. What am I going to say if the kid picks out a $10 bag of candy? “That $10 bag is too much money.” Not a chance. Maybe I’m supposed to suggest that the kid find some cheaper candy? I don’t know. In any event, I imagine the average selling price of candy increases when I’m buying, even if the cost of candy does not change.

There’s a lot of old money, and the “new money” tends to be the temporarily down among the peasants children of old money, who play poor for a while but of course somehow they’re going to Stanford as undergrads etc., then hey badda-bing lookit me! I went from zero to hero and I was just a poor kid, bla bla bla….

It hasn’t changed since the 1920s. When Hewlett and Packard went to Stanford as undergrads. Hewlett’s parents were wealthy, very much so. There was no way little Hewlett wasn’t gonna get the full gilt-edged ride at The Farm, and that’s how it went. It was sheer COINCIDENCE that he just happened to be quite smart and liked electronics. In Packard’s case, he had going for him the one thing that gets an American guy from zero to hero, he had the talent and physical gift for FOOTBALL or actually, as we say it, FOOGHBAWW!!! said in a roaring voice. Packard the Plow. A human bulldozer with a taste for puttin’ on the hurt, that’s what go him his own gilt-edge ride at Snodfart. Again, COINCIDENTALLY, he was an electronics nut. Otherwise he’d have gone on to the pros and a good career playing and then coaching.

The class lines are strong in the US. Take a personal hero of mine, Louis Armstrong. Oh yeah, all poor black kids back then, they gravitated toward music etc blah blah right? Well, yes he did music, he also did manual work, a lot of it quite hard, a bit of pimping, whatever worked. Frankly, he’d like as not have died before he was 15 or so from a stabbing, shooting, gotten beaten so badly that trumpet playing was out, etc. What saved him was getting thrown into the Colored Waif’s Home, run by a middle-class, militaristic guy who for the sake of discipline and well, because bands are cool and teach it, worked for a few YEARS instilling in this particular waif hours of disciplined practice, music-reading, the kind of discipline that nice middle-class kids who are in Band today get. Out of 1,001 ways to get his life derailed or just plain ended, he landed in that Waif’s Home and its band. There were a whole lot of hot players we’ll never know about because they didn’t make it through that needle-eye, or much past their teen years.

An awful lot of “new” money is just “old” money after a fresh laundering.

Wow, a record-long post from Gilroy Alex. Have you read The Tipping Point? You would find it interesting. Malcolm Gladwell makes the same point about Bill Gates in it. Sure, he was into programming, but without upper middle class parents to grant him access to computers (back then, not everyone had one), he probably wouldn’t have been so successful.

The old money is mostly in SF’s Pacific Heights district or in Hillsborough. Not really the same crowd as that in the South Bay.

Don’t buy into the excuse that one needs a certain background to be successful. Technology is leveling the playing field. Computer is cheap and ubiquitous. Internet provides a world of information to kids everywhere.

For the younger crowd, Palo Alto is in my opinion the more happening place to be.
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🙂 I am wondering where is that “happening place” in Palo Alto. Young crowd? You mean college students – those who go to Stanford and those who wear Stanford sweatshirts? Are there any other kind of young crowd in Palo Alto? I thought the only happening place in South Bay is In-N-Out in Sunnyvale.

#18, big fan of Tipping Point and Gladwell here. Not only did Gates’ upper-middle class existence give him access to a computer lab, he was one of the first young people to have that opportunity. Gladwell’s point was that many of the people who made it big in software were born in 1955/56. The first people to get a crack at the computers and really learn them were the ones who were able to see the business possibilities.

Don’t forget Gates’ dad was a coporate lawyer. Gates was able to succeed early Microsoft because he recognized the power of a well-written contract in his favor.

I read something yesterday about college admissions and how most of the more selective schools are primarily admitting students from very wealthy families. The cost has gotten so out of hand that only the wealthy would consider applying to even many of the large state schools (UC remains an exception and a paragon of economic diversity compared to, say U Michigan).

Good news! Groupon to dramatically expand presence in Palo Alto. Just another example of why Palo Alto is the “happening place”. It’s the place where innovation, intellect, and capital congregate. There are other nice places to live, but there is energy here like nowhere else.

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